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> “I’d expect heightened attention to ongoing due diligence around the financial condition of these kinds of middleware vendors, none of which are profitable, a

> “I’d expect heightened attention to ongoing due diligence around the financial condition of these kinds of middleware vendors, none of which are profitable, and increased focus on business continuity and operational resilience for banks engaged in BaaS operating models.” This is exactly why banking regulations (e.g., FDIC) were invented. Private organization could not be depended on for "heightened attention" or to do "due diligence". It's little wonder that these new private organization would behave similarly. It's amazing that this person can say that with a straight face. https://en.wikipedia.org/wiki/Federal_Deposit_Insurance_Corporation#Panics_of_1893_and_1907_and_the_Great_Depression:_1893%E2%80%931933 https://en.wikipedia.org/wiki/Federal_Deposit_Insurance_Corp...

roenxi 2y ago
> This is exactly why banking regulations (e.g., FDIC) were invented. But the FDIC suppresses the natural heightened attention and due diligence tendencies of the free market. There isn't any risk for someone giving their money to a badly-managed corporation, so they do it without thinking. The customers face no risk, so the custodians start taking crazy bets because it isn't their money and so they don't really face much risk either. If anything the FDIC should be cast as a serious moral problem, people with money are being allowed to take no-care no-responsibility stances when their capital is being used harmfully. And I'm not sure where this argument comes from that capitalists wouldn't care about their money. One of the things that people most reliably care about is the safety of their money, to the point where it is hard to parody. The main issue that I see is they are acting while weighing up the (reasonably high) odds of bailouts happening.
- gnulinux996 2y ago
  Does the existence of a seat-belt suppress the "natural heightened attention" (whatever this is) of the driver? > There isn't any risk for someone giving their money to a badly-managed corporation, so they do it without thinking I have no insight to the institutions I give my money to; if they operate on American soil, I "understand" that they have been regulated and brought up to standard by the State. The fact that a consumer depositing their money in the bank has to do "due diligence" or needs to be blamed when the institution (company?) goes belly up is laughable.
  - roenxi 2y ago
    > Does the existence of a seat-belt suppress the "natural heightened attention" (whatever this is) of the driver? No. If there is a crash the driver will still be involved in the crash. Seatbelts are a risk-reduction technique, FDIC is risk transfer. > I have no insight to the institutions I give my money to... The good news is you're pretty normal. However the observation is you're enabling a bunch of rather untrustworthy people who don't care about your interests and it is pretty easy to imagine that story ending worse than if you were in a position where you either demanded some insight or didn't give them money.
  - smarm52 2y ago
    Great response, thank you. > Does the existence of a seat-belt suppress the "natural heightened attention" (whatever this is) of the driver? I love this analogy. It neatly highlights that an individual, no matter how "attentive" can still be acted on by external forces. And also, implies that said individual is always affected by those around them, because they share their environment with others. I find that same have difficult grasping these points, at times.
- helsinkiandrew 2y ago
  > The customers face no risk, so the custodians start taking crazy bets because it isn't their money and so they don't really face much risk either But these weren't a shady schemes that offered unbelievable returns, just basic bank cards - No 15 year old is going to, is able to, or should be expected to audit the vendors that the 'bank' account they use for holding their allowance in uses.
  - roenxi 2y ago
    I mean, there is an assumption in your post. That assumption is that a 15 year old should be able to give their money to some untrustworthy stranger to do who-knows-what and expect to get the money back. It is a weird double standard to me given the thread root post. I don't think people should be giving money to others thoughtlessly. If you aren't capable of understanding the consequences of your investments - as this 15 year old clearly isn't - don't invest. There is this whole financial system where we know that the people involved are sub-competent, a lot of the financial incentives that would flush incompetents out of the system have been removed, and then we expect this 15 year old to support their operations financially. To me that seems kinda silly when we put it together. This 15 years old can just put the money in a known full-reserve bank. We don't have those because responsible custodianship is uneconomic with things like the FDIC floating around, but that is a regulatory problem.
    - helsinkiandrew 2y ago
      > I mean, there is an assumption in your post. That assumption is that a 15 year old should be able to give their money to some untrustworthy stranger to do who-knows-what and expect to get the money back. No I’m saying companies shouldn’t be able to look like banks without being regulated like them. This could be through a government agency, or a rating or industry organisation that guarantees orderly shutdown. If the travel industry can ensure tourists aren’t stranded abroad when travel agencies go bust why can’t fintech.
- CaptainZapp 2y ago
  There's a reason why not every two bit shyster we shit on regulations fintech enterprise can get FDIC insured. To the best of my knowledge payouts are incredibly rare.
- graemep 2y ago
  > There isn't any risk for someone giving their money to a badly-managed corporation, so they do it without thinking The problem us that consumers are not capable of figuring out whether a corporation is well managed or not. They have neither the information nor the analytical abilities. Analysts, even specialists in risk, and regulators often get it wrong! Very few people saw the 2008 collapse coming. Some of us had doubts about particular institutions (Northern Rock, first UK bank to go, in my case) or about the level of bad mortgage lending, but very few people, and very few of those who were supposed to know,saw it coming. > And I'm not sure where this argument comes from that capitalists wouldn't care about their money. Where did you get that from? The problem is that people who are in charge of other people's money will risk it for various reasons, often due to a conflict of interests. Edit: to add, the problem is really "agency issues" - was trying to avoid terminology.
  - smarm52 2y ago
    > The problem is that people who are in charge of other people's money will risk it for various reasons, often due to a conflict of interests. Thank you for your response. I wanted to amplify this point. This sort of thing is very common in hierarchical organizations. de Mesquita and colleagues have a model that fits reality quite nicely, and indicates a reason for this behaviour. https://en.wikipedia.org/wiki/The_Logic_of_Political_Survival https://en.wikipedia.org/wiki/The_Logic_of_Political_Surviva...
gnulinux996 2y ago
Frankly, every time an American colleague comes swinging with free marketeering "ideologies" and the naturality of "people are not stupid they can do their own due diligence" it is these kind of stories I show them. If the American society is a low-trust one, this is one of the reasons why.
Terr_ 2y ago
> This is exactly why banking regulations (e.g., FDIC) were invented. When it comes to this kind of stuff, there's a large and sometimes-glossed-over difference between: "These laws/regulations are bad" versus "there's no real reason for these laws/regulations to exist." The latter is frustrating to hear, since it is less a philosophical disagreement and more of a "those who do not know history are doomed to repeat it" problem.
fauigerzigerk 2y ago
>This is exactly why banking regulations (e.g., FDIC) were invented. No it's not. FDIC deposit insurance was invented because no amount of due diligence can stop a bank run once it has been triggered somehow, and no amount of due diligence can stop domino effects. For banks to serve their purpose of accepting deposits and make loans that cannot be called at a moment's notice, you have to accept that even the best run banks are exposed to this sort of risk. Systemic risks simply cannot be handled at the level of individual banks. It's a structural feature of the banking system.

roenxi 2y ago

> This is exactly why banking regulations (e.g., FDIC) were invented. But the FDIC suppresses the natural heightened attention and due diligence tendencies of the free market. There isn't any risk for someone giving their money to a badly-managed corporation, so they do it without thinking. The customers face no risk, so the custodians start taking crazy bets because it isn't their money and so they don't really face much risk either. If anything the FDIC should be cast as a serious moral problem, people with money are being allowed to take no-care no-responsibility stances when their capital is being used harmfully. And I'm not sure where this argument comes from that capitalists wouldn't care about their money. One of the things that people most reliably care about is the safety of their money, to the point where it is hard to parody. The main issue that I see is they are acting while weighing up the (reasonably high) odds of bailouts happening.

gnulinux996 2y ago
Does the existence of a seat-belt suppress the "natural heightened attention" (whatever this is) of the driver? > There isn't any risk for someone giving their money to a badly-managed corporation, so they do it without thinking I have no insight to the institutions I give my money to; if they operate on American soil, I "understand" that they have been regulated and brought up to standard by the State. The fact that a consumer depositing their money in the bank has to do "due diligence" or needs to be blamed when the institution (company?) goes belly up is laughable.
- roenxi 2y ago
  > Does the existence of a seat-belt suppress the "natural heightened attention" (whatever this is) of the driver? No. If there is a crash the driver will still be involved in the crash. Seatbelts are a risk-reduction technique, FDIC is risk transfer. > I have no insight to the institutions I give my money to... The good news is you're pretty normal. However the observation is you're enabling a bunch of rather untrustworthy people who don't care about your interests and it is pretty easy to imagine that story ending worse than if you were in a position where you either demanded some insight or didn't give them money.
- smarm52 2y ago
  Great response, thank you. > Does the existence of a seat-belt suppress the "natural heightened attention" (whatever this is) of the driver? I love this analogy. It neatly highlights that an individual, no matter how "attentive" can still be acted on by external forces. And also, implies that said individual is always affected by those around them, because they share their environment with others. I find that same have difficult grasping these points, at times.
helsinkiandrew 2y ago
> The customers face no risk, so the custodians start taking crazy bets because it isn't their money and so they don't really face much risk either But these weren't a shady schemes that offered unbelievable returns, just basic bank cards - No 15 year old is going to, is able to, or should be expected to audit the vendors that the 'bank' account they use for holding their allowance in uses.
- roenxi 2y ago
  I mean, there is an assumption in your post. That assumption is that a 15 year old should be able to give their money to some untrustworthy stranger to do who-knows-what and expect to get the money back. It is a weird double standard to me given the thread root post. I don't think people should be giving money to others thoughtlessly. If you aren't capable of understanding the consequences of your investments - as this 15 year old clearly isn't - don't invest. There is this whole financial system where we know that the people involved are sub-competent, a lot of the financial incentives that would flush incompetents out of the system have been removed, and then we expect this 15 year old to support their operations financially. To me that seems kinda silly when we put it together. This 15 years old can just put the money in a known full-reserve bank. We don't have those because responsible custodianship is uneconomic with things like the FDIC floating around, but that is a regulatory problem.
  - helsinkiandrew 2y ago
    > I mean, there is an assumption in your post. That assumption is that a 15 year old should be able to give their money to some untrustworthy stranger to do who-knows-what and expect to get the money back. No I’m saying companies shouldn’t be able to look like banks without being regulated like them. This could be through a government agency, or a rating or industry organisation that guarantees orderly shutdown. If the travel industry can ensure tourists aren’t stranded abroad when travel agencies go bust why can’t fintech.
CaptainZapp 2y ago
There's a reason why not every two bit shyster we shit on regulations fintech enterprise can get FDIC insured. To the best of my knowledge payouts are incredibly rare.
graemep 2y ago
> There isn't any risk for someone giving their money to a badly-managed corporation, so they do it without thinking The problem us that consumers are not capable of figuring out whether a corporation is well managed or not. They have neither the information nor the analytical abilities. Analysts, even specialists in risk, and regulators often get it wrong! Very few people saw the 2008 collapse coming. Some of us had doubts about particular institutions (Northern Rock, first UK bank to go, in my case) or about the level of bad mortgage lending, but very few people, and very few of those who were supposed to know,saw it coming. > And I'm not sure where this argument comes from that capitalists wouldn't care about their money. Where did you get that from? The problem is that people who are in charge of other people's money will risk it for various reasons, often due to a conflict of interests. Edit: to add, the problem is really "agency issues" - was trying to avoid terminology.
- smarm52 2y ago
  > The problem is that people who are in charge of other people's money will risk it for various reasons, often due to a conflict of interests. Thank you for your response. I wanted to amplify this point. This sort of thing is very common in hierarchical organizations. de Mesquita and colleagues have a model that fits reality quite nicely, and indicates a reason for this behaviour. https://en.wikipedia.org/wiki/The_Logic_of_Political_Survival https://en.wikipedia.org/wiki/The_Logic_of_Political_Surviva...

gnulinux996 2y ago

Frankly, every time an American colleague comes swinging with free marketeering "ideologies" and the naturality of "people are not stupid they can do their own due diligence" it is these kind of stories I show them. If the American society is a low-trust one, this is one of the reasons why.

Terr_ 2y ago

> This is exactly why banking regulations (e.g., FDIC) were invented. When it comes to this kind of stuff, there's a large and sometimes-glossed-over difference between: "These laws/regulations are bad" versus "there's no real reason for these laws/regulations to exist." The latter is frustrating to hear, since it is less a philosophical disagreement and more of a "those who do not know history are doomed to repeat it" problem.

fauigerzigerk 2y ago

>This is exactly why banking regulations (e.g., FDIC) were invented. No it's not. FDIC deposit insurance was invented because no amount of due diligence can stop a bank run once it has been triggered somehow, and no amount of due diligence can stop domino effects. For banks to serve their purpose of accepting deposits and make loans that cannot be called at a moment's notice, you have to accept that even the best run banks are exposed to this sort of risk. Systemic risks simply cannot be handled at the level of individual banks. It's a structural feature of the banking system.